Suggested Class Revenue Deferral Methodology

Determine at the end of a month, how many classes for which you have collected the fees but have yet to provide your customers. We suggest you simply allocate your current season revenues by month based on the number of weeks in each month.

For example, if your Fall Session of classes (September to November) is 12 weeks, and you collect $120,000 for the session, count the number of weeks in each month and recognize the pro-rata amount of revenue in each month. In this example, let’s assume you have 3 weeks in September, 5 in October and 4 in November. At the end of September, you would “owe” your customers 9 classes. So, your Deferred Class Revenue account (a liability on your balance sheet) would need to have a balance of 9/12*$120,000 or $90,000. Your journal entry as of September 30th would be:

DR - Class Revenue $90,000

CR – Deferred Class Revenue $90,000

On October 1st, you want to reverse this journal entry, as you will be making a new one at the end of the month based on a new calculation. The reversal is as follows:

DR – Deferred Class Revenue $90,000

CR – League Revenue $90,000

On October 31st, you will make a new entry to reflect how many classes you still owe your customers as of the end of October. In this example, you owe them for the 4 classes in November. So, your Deferred Class Revenue calculation is 4/12*$120,000 or $40,000. Your journal entry as of October 31st is:

DR - Class Revenue $40,000

CR – Deferred Class Revenue $40,000

On November 1st, you want to reverse this journal entry, as you will be making a new one at the end of the month based on a new calculation. The reversal is as follows:

DR – Deferred Class Revenue $40,000

CR – League Revenue $40,000

Often it is the case where you have collected money for a future session AND have a class or two remaining in the current season. We suggest you make an entry for each session, so it is clear and simple what each entry is trying to accomplish. The first would be the same as in the above example. The second would be the same entry, but for 100% of the future session fees already collected. In the case of classes, it is most likely nearly all the class fees collected in the month preceding the start of the session are for the next session, not the current session. You may simply want to defer 100% of these fees rather than trying to determine amounts paid for the current session.